Microsoft's Software Plus Services Strategy

Steve Ballmer has been repeating himself lately. He keeps saying Microsoft "grew up as what people like to call a desktop company. To this day, I'm not sure I know what a desktop company is, but I know we were a desktop company." Ballmer's uncertainty is disingenuous given that Microsoft's mission statement was "A PC on every desktop and in every home." But his assertion leads his listeners to acknowledge that Microsoft has a track record of diversification that proves a desktop company can conquer the enterprise. Ballmer is neatly laying the foundation for people to accept that Microsoft is prepared to change its business model again and overtake "Web 2.0" competitors such as Google and Salesforce.com. Ballmer's term for this new competitive model is "Software Plus Services" (my emphasis). But beyond addressing competitors that offer Software as a Service (SaaS), Ballmer's term goes directly to the heart of the real competitive challenge Microsoft faces: how to protect and grow Microsoft's huge software revenue while finding a way to monetize Web-based services.

Microsoft vs. Microsoft
How can Microsoft avoid competing with itself as the company takes on SaaS? All indications are that SaaS has galvanized the company around a strategy that amounts to a grand unification of Microsoft's disparate products. The company isn't looking solely at providing services to go along with all of its software—as, for example, with Exchange Server and Outlook Client on the software side, Outlook Web Access (OWA) on the service side, Outlook Mobile as a device form factor, and Outlook Voice Access on the Unified Communications (UC) side. Doing so is a given: Chris Jones, corporate vice president, Windows Live Experience Program Management, has said, "Looking ahead five years we believe every piece of software could come with a service and that customers will come to expect that." Nor do I think Microsoft is simply creating a business model for subscription services such as Windows Live and Microsoft Dynamics, or just getting serious about advertising revenue, or even hosting business-critical technologies such as Exchange.

Rather, I think the key to Microsoft's "grand unification" is indicated by the four pillars of Software Plus Services that Ballmer has been touting in such remarks as, "[T]he only model that will be able to really supersede where we are today, needs to bring together the best of four very different phenomenon [sic]: the best of the desktop PC world; rich user interface; offline and online access; what I call personal integration, the ability to bring things together and integrate them and store them and manage them and link them together in unique and arbitrary ways, not restricted to what somebody will let you do on some server or some service."

Integrate, Manage, Store, Link
You can see how Ballmer's four pillars translate into Microsoft unification if you think about the initiatives generating the most momentum within Microsoft: integration (e.g., Office as a front end for business applications and business intelligence—BI), management (System Center becoming the ubiquitous management paradigm—both as a brand and as an integrated component of products such as Forefront and, soon, SQL Server), storage (SharePoint, SQL Server, and storage per se), and linkage (UC bringing together all communication at the PC)—and I'm not even touching on the developer side of all this.

Explicitly, Ballmer has said, "We're building out a service-based infrastructure, not server by server, but new management model, new development model, new storage, networking, computation model from the get-go. On top of this new platform, the cloud infrastructure services, we're also building directory services, rendezvous, device management, the kinds of things that we deliver to you today in our packaged products."

Strategic Direction?
It's always amazed me that Microsoft could never manage to determine a strategic direction for the entire company. Could it be that the company finally figured out how to move itself forward under a coherent strategy that continues to produce software revenue but also creates new revenue streams?

Commenting on Software Plus Services, Paul Thurrott recently wrote, "The real surprise, of course, is that the company honestly has no idea how it's going to make it all work yet. Yesterday, Microsoft CEO Steve Ballmer said they would need 3–10 years, depending on the product, to make this transition" (WinInfo Short Takes: "Week of July 30," July 27, 2007, InstantDoc ID 96662.) I respectfully disagree with my colleague and friend Paul. I believe Ballmer's time frame refers to how long it will take to put together the pieces of the grand unification strategy.

But then, this is Microsoft. By the time this article is published, the company might be on a completely new path. Let me know where you see the company moving.